The relationship between China and Australia has been strained because of a series of bilateral frictions such as the Rio Tinto business espionage case, the Dalai Lama issue and Australia's attitude toward Xinjiang separatist Rebiya Kadeer. This development has come as a surprise, especially because Sino-Australian ties had been progressing smoothly on the political, economic, cultural and educational fronts after the end of the Cold War.

Experts agree that Australia has benefited greatly from bilateral trade. Australia's official statistics show that during 2008-09, bilateral trade touched 83 billion A$ (about $76.1 billion). Australia's exports to China rose from 2008 to 2009, that is, during the height of the global financial crisis. To a large extent, the increase in exports to China has helped Australia weather the global financial storm and fueled its economic growth. And China has become Australia's largest trade partner and the largest export target.

China and Australia are important investment partners, too. Till 2008, Australians had invested $5.82 billion in 8,954 projects in China, and China's non-financial direct investment in Australia was about $3 billion.

But their trade relations have been marred by frictions, because of several factors. China's fast-paced economic growth is largely dependent on the effective supply of strategic resources. Since the demand for coal and iron ore in China is very high, some shortsighted Australian entrepreneurs, with the backing of some politicians, threaten to raise their prices not only to make more money, but also to thwart Beijing's fast-paced economic growth.

Recently, China and Australia agreed to negotiate iron ore prices in the first quarter of every year. But some Australians still believe the agreement between Chinalco and Rio Tinto could pose a threat to Australia's resource industries and national security.

China is thousands of miles away from Australia and, hence, does not pose a security threat to it (or any other country for that matter). But Australia supposes that regional safety is connected with the rise of China. It assumes, and wrongly so, that the rise of China as a military power will upset the regional power balance. Some Australians say China's rise may create a spillover effect and ultimately pose a danger to Australia.

The Australia Defense White Paper, released recently, specifically mentions China's development and regional position and says it is a potential reason why Australia should modernize its military. Since Australia is a big power in South Pacific Ocean, the growing relationship between China and other South Pacific island nations have unnecessarily raised Australia's worries, and helped the "China Threat" gain a foothold in Australia.